Banks stay closed as Cyprus scrabbles for cash

Liz Alderman and David Herszenhorn

NICOSIA: Scrambling to placate international lenders, Cyprus has proposed to nationalise the country's pension funds and conduct an emergency bond sale to help raise the €5.8 billion (7.23 billion) the indebted country needs to secure a bailout.

The proposals are meant to slash the amount of money that would be raised by a controversial tax on bank deposits, as originally planned in a €10 billion international bailout package that the Cypriot Parliament rejected on Tuesday.

But even the revised plan contains a bank tax that, while much smaller than originally proposed, may still not be palatable to Parliament. Under the new plan, hammered out late on Wednesday, all Cypriot bank deposits of up to €100,000 would be hit by a one-time tax of 2 per cent. Deposits above that threshold would be subject to a 5 per cent levy.

The fallback was being cobbled together as Cyprus' finance minister pressed his case in Moscow on Wednesday in the hope of securing additional aid from Russia.

The government extended the closure of the banks through to next Tuesday, hoping to prevent a run on Cyprus' financial institutions. Banks have frozen all accounts in a financial crisis that risks tipping the country into default and sowing turmoil across the eurozone.

Banks have been closed since Saturday, and authorities have ordered them to keep ATMs filled with cash as long as their doors remain shut. But that has been of little help to the thousands of international companies with accounts in Cyprus, which cannot transfer money in and out of their accounts to conduct business.

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The extended bank holiday is aimed at buying time for Cypriot authorities to reach an agreement with the International Monetary Fund, the European Central Bank and the European Commission, which were not certain to approve Cyprus' latest plan.

Three banks dominate the economy, and each is edging close to collapse.

The finance minister of Cyprus, Michalis Sarris, met his Russian counterpart, Anton Siluanov, on Wednesday morning at the Russian Finance Ministry, and a deputy prime minister, Igor Shuvalov, in the afternoon.

Emerging from the morning session, Mr Sarris reported no progress. "We had a very good first meeting – a very constructive, very honest discussion."